The News of the World will close after a final edition this weekend, News International chairman James Murdoch said today.

The tabloid newspaper will be published for the last time on Sunday after it was rocked by the phone hacking scandal.

Mr Murdoch said in a statement: "Having consulted senior colleagues, I have decided that we must take further decisive action with respect to the paper. This Sunday will be the last issue of the News of the World."

The shock development came as police said there could be as many as 4,000 victims of phone hacking by the paper, which has been published for 168 years.

Mr Murdoch said this Sunday's edition of the News of the World would have no commercial advertisements and all the revenue from sales would go to good causes.

He praised the paper's achievements but condemned this week's revelations that phone hacking victims may have included murdered schoolgirl Milly Dowler, bereaved military families and relatives of 7/7 bombing victims.

He said: "The good things the News of the World does, however, have been sullied by behaviour that was wrong.

"Indeed, if recent allegations are true, it was inhuman and has no place in our company."

News of the World royal editor Clive Goodman and private investigator Glenn Mulcaire were jailed in 2007 after plotting to intercept voicemail messages left for royal aides.

Mr Murdoch accepted that the paper made statements to Parliament "without being in the full possession of the facts" and said he wrongly approved out-of-court settlements without having a "complete picture" of what had happened.

He went on: "The News of the World is in the business of holding others to account. But it failed when it came to itself.

"In 2006, the police focused their investigations on two men. Both went to jail. But the News of the World and News International failed to get to the bottom of repeated wrongdoing that occurred without conscience or legitimate purpose.

"Wrongdoers turned a good newsroom bad and this was not fully understood or adequately pursued.

"As a result, the News of the World and News International wrongly maintained that these issues were confined to one reporter.

"We now have voluntarily given evidence to the police that I believe will prove that this was untrue and those who acted wrongly will have to face the consequences. This was not the only fault.

"The paper made statements to Parliament without being in the full possession of the facts. This was wrong.

"The company paid out-of-court settlements approved by me. I now know that I did not have a complete picture when I did so. This was wrong and is a matter of serious regret."

Labour MP Tom Watson told Sky News: "Let's be clear about this, this paper has closed but the hacking saga has not.

"The issue for me today is not whether Rupert Murdoch closes a paper that was going to go bankrupt because there are no advertisers or readers left, it is whether Rebekah Brooks is going to consider her position and resign as chief executive of News International.

"The anger will only subside when a very senior executive in this company takes responsibility for this heinous attack on British people."

Mr Watson added: "There are only two people in the country left who are supporting Rebekah Brooks today - Rupert Murdoch and David Cameron. I'm surprised she even bothered turning up to work this morning."

The MP said: "No one was going to buy this paper any more. No one was going to advertise in it. They destroyed it. The people who were hacking phones, they were the people who closed this paper.

"I feel very sorry for honest journalists who are left at the paper and I actually have a degree of sympathy for the outgoing editor Colin Myler who, I think frankly has had to carry a heavy load for the wrongdoing of other people in the organisation."

Addressing News of the World staff, Mr Murdoch said he wanted all News International's journalism to be "beyond reproach". He made it clear that some people would lose their jobs as a result of the paper's closure.

He said: "Many of you, if not the vast majority of you, are either new to the company or have had no connection to the News of the World during the years when egregious behaviour occurred.

"I can understand how unfair these decisions may feel. Particularly for colleagues who will leave the company. Of course we will communicate next steps in detail and begin appropriate consultations.

"You may see these changes as a price loyal staff at the News of the World are paying for the transgressions of others. So please hear me when I say that your good work is a credit to journalism.

"I do not want the legitimacy of what you do to be compromised by acts of others. I want all journalism at News International to be beyond reproach.

"I insist that this organisation lives up to the standard of behaviour we expect of others. And, finally, I want you all to know that it is critical that the integrity of every journalist who has played fairly is restored."

Mr Murdoch said News International was co-operating "fully and actively" with the two Scotland Yard inquiries into allegations of phone hacking and payments to police officers.

He said the company acknowledged it had made mistakes and was doing its "utmost" to "fix them, atone for them, and make sure they never happen again".

Rose Gentle, whose son Fusilier Gordon Gentle was killed in Iraq in 2004, had called for the News of the World to be closed down amid suspicions that her phones had been targeted.

On hearing the news today, she said she was "glad" the paper will close.

She said: "The News of the World are the only journalists that we ever had bad dealings with.

"I'm glad that they're gone, but it doesn't mean we're going to give up the fight to find out if our families' phones were hacked."

Former deputy prime minister Lord Prescott, one of the alleged victims of phone hacking, said that closing the paper would not resolve the problems at News International. "Cutting off the arm doesn't mean to say you've solved it. There is still the body and the head and the same culture and that's why there has be a public inquiry into it," he said.

"I cannot accept for a moment that at the top of the company, Mr Murdoch - certainly Rebekah Brooks - didn't know what was going on.

"Now some poor suckers on the News of the World are now going to be put on the dole simply because they've decided to make a cost-cutting exercise which they said they were going to do a week or so ago."